An online store sells a product for which the daily demand is normally distributed with a mean of 120 units and with a standard deviation of 10 units. We assume the source of supply has a constant lead time of 14 days. The cost for placing an order is $75 and the annual holding cost per item is $0.5. There is no stock out cost and we assume that unfilled orders are filled as soon as the orders arrives. Sales operate 365 days/year. The company wants to have a 95% service level of not stocking out during the lead time.
1. What is the Economic Order Quantity (EOQ)?
2. What Safety Stock level does the company need to reach the desired service level?
3. What Re-Order Point (ROP) level does the company need to reach the desired service level?